Serious Investments Sector Analysis Assignment Instructions: Choose your sector. Then follow these steps: 1) Go to www.investor.reuters.com. In the left menu, click in Industries 2) Click on the By Industry Tab and find the industries in your sector 3) On each industry page, find the Industry Statistics box (bottom right), and get the Trailing 12 month (TTM) P/E, the Net Profit Margin & Return on Equity figures. 4) In the left menu, click on the Company Ranks link. On the next page, in the same column, click on Growth History. Get the 3-year sales and EPS industry averages. “MktCap Weighted Average” 5) Use these numbers to complete the worksheet below for the top 12 (if applicable) industries in your sector. Please take a deep look at each industry as you go and be prepared to give us your best choices & the reasons. Sector: Industry Name: P/E (TTM) Net Profit Margin % Return on Equity % 3-year Sales Growth 3-year EPS Growth Definitions: 1. P/E = Price to Earnings ratio shows the relationship between a stock price and its company's earnings (or profits) per share of stock. To calculate this figure you would take the market value of the shares and divide it by the earnings per share (Market value of share) / (Earnings per share). P/E is important because it helps you look at a company's growth. A higher P/E suggests that the public expects the company to grow more in the future than a company with a lower P/E. 2. Net Profit Margin = the profit margin tells you how much profit a company makes for every $1 it generates in revenue. Profit margins vary by industry, but all else being equal, the higher a company’s profit margin compared to its competitors, the better. The calculation used to determine this figure would be the net income divided by revenue (net income/revenue). Net income refers to the profits remaining after taxes and operating cost/expenses and cost of goods/services are paid (Sales) – (Cost). 3. Return on Equity (ROE) = measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders (known as shareholders equity) have invested. Shareholder's equity can be found on the balance sheet and is simply the difference between the total assets and total liabilities. The calculation of this is the net profit divided by the shareholders equity (Net profit) / (Shareholder equity) For example, If you owned a business that had a net worth [shareholder’s equity] of $100 million dollars and it made $5 million in profit, it would be earning 5% on your equity [$5 / $100 = .05, or 5%]. The higher you can get the “return” on your equity, in this case 5%, the better. 4. EPS = Earnings per Share is the portion of the company's profit that is allocated to each outstanding share of common stock. In other words it is the earnings returned on the initial investment amount. EPS is a good indicator of a company's profitability. To calculate this information we would take (Net income - Dividends on Preferred Stock) / (Average Outstanding Shares).